Book review: Blue Blood, by Robert Pickering

In Blue Blood: Cazenove in the age of global banking, Robert Pickering has really written at least two stories. One is ostensibly a history of his time at Cazenove, from joining the firm in 1985, becoming partner in 1993, rising to run the firm in 2001, first together with fellow banker Nigel Rowe and then alone as Cazenove’s first chief executive at the age of 41, until his departure in 2008.

Along the way, he traces the days of the firm from an antiquated partnership, its first radical reshaping through incorporation and external investment in 2001, its embrace of a joint venture with JPMorgan in 2005 and its eventual assimilation by the US bank.

But another story, running in parallel with the first, is a tale of corporate identity and how amorphous that can be, shape shifting with the perspective of the viewer.

Time and again Pickering traces the dichotomies: how internal opinions diverged on what Cazenove could or should be, how clients’ views of the firm were often at odds with how its more progressive staff wished to be seen, how UK rivals would fight those staff tooth and nail in contrast with US houses’ confident willingness to tolerate Cazenove’s presence on deals.

The subtext of identity crisis is an appropriate one for Cazenove, which wrestled for decades with the question of how far to follow the zeitgeist and how far to resist it.

In Pickering’s telling, the pressure to respond to changes in the industry eventually became impossible even for Cazenove to ignore. No, it didn’t need capital, but the dotcom boom was pushing it into a need to incorporate to at least provide tradeable equity. And that mattered if the firm wanted to be competitive in hiring.

It is hard to overstate how radical an upheaval incorporation in 2001 was for the partnership group at Cazenove. Until a critical weekend meeting at a Heathrow airport hotel in late 2000, the firm had never even held a partners’ meeting. Now the talk was of bringing in a group of institutional investors as a pre-cursor to an eventual IPO.

As senior partner David Mayhew told the group: “We are not selling, but investing in the future”. The investors came in, but the IPO never happened, overtaken by markets and the JPMorgan joint venture instead.

As so often, Pickering paints Cazenove as insecure and defensive to a fault. As incorporation neared, private equity firms were sniffing around and there might have been deals to be done. But “we did not fancy having a whip-smart shareholder representative with very high return expectations sitting on our board and asking lots of penetrating questions,” he writes.

It is a theme that continues throughout the story, the sense of a firm often in awe of – and puzzled by – its own external image. Pickering and others are constantly surprised at the obsession of the press regarding the firm – “totally disproportionate to our size or real importance”.

It may have annoyed him back then, but it is an obsession that will help him now that he has a book to sell.

The occasional insult is disarmingly throwaway. One banker dismissing Cazenove’s earnings at the time as what he might expect to make on a couple of telecoms deals prompts the reflection that “the average investment banker does not know the difference between revenue and profit”.

It is unsurprising that Pickering should have been one of the driving forces behind a different approach to business within Cazenove. The signs were there early in his career, with his frustration at how “the bankers” at the merchant banks looked down on “the brokers” at the likes of Cazenove.

It was a condescension that cut to the quick, given the fact that “seeing ourselves as stockbrokers not bankers had become a matter of principle”.

Increasingly, though, Cazenove’s core business of corporate broking was being threatened by domestic and – more worryingly – international firms, many of whom were able to pour the kind of resources into their operations that Cazenove, groaning under the weight of its client list, could never do.

Clients started to grow restless, confronting Cazenove partners with the thick reports being produced by their rivals and wondering why they were not getting the same service.

Pickering was sceptical, concluding that most shareholder “feedback” being gathered by the big banks was fabricated. Far better, he said, to put the effort into building the advisory business that he was responsible for.

“After all, most of the merchant banks were trying to turn themselves into brokers, so why shouldn’t we play them at their own game?”

In another of the contrasts that fed the identity crisis, clients at first responded to this with bemusement. “But we have always thought of you as our brokers,” Pickering recalls The Thomson Corporation telling him after having failed to even invite Cazenove to a beauty parade for the spin-off of its travel business. “We never thought you would be the ones to lead the charge.”

The task of Pickering and his band of corporate financiers looking to shake up Cazenove and the market at the same time was to get the message out that expectations had shifted.

Over time, and often to the surprise of those within the firm, the market came round. Pickering talks of an exhilarating period in the run-up to 2000, with clients increasingly happy to award Cazenove the financial advisory credit it wanted to give it league table presence where it counted, as well as joint bookrunning mandates on equity capital markets deals.

Incorporation – and the prospect of a flotation – might have helped boost the firm’s appeal to its executives, but it did nothing to ease the competitive threat to its business, and by the early 2000s Pickering and Mayhew were again giving thought as to how best to respond.

Correctly reading that Cazenove would be seen as a prized piece of the jigsaw for any international firm looking to bolster their UK investment banking credentials – as all the US firms were increasingly keen to do – they embarked on a fishing exercise across the Atlantic.

For readers familiar with the personalities of the time, the most entertaining part of the whole tale may be this whistlestop tour of New York by Mayhew and Pickering in October 2003, after Cazenove had commissioned a McKinsey assessment of its business and how the bulge-bracket firms were targeting Europe – a strategy that necessarily meant cracking the UK market, which in turn meant embarking on corporate broking.

Cazenove’s conclusion was that the firm would be approached soon enough, but they decided to take the initiative, Mayhew writing “actual letters” – an anachronism even in 2003 – to arrange meetings with those running Lehman Brothers, Morgan Stanley, Citi, Goldman Sachs and Credit Suisse First Boston (CSFB).

The likes of Phil Purcell, John Mack, Hank Paulson, Michael Klein and Brady Dougan are deftly sketched. A hilariously optimistic Bob Greenhill is a highlight.

Other details catch the eye: CSFB was one of the three firms (along with Lehman and, eventually, Barclays) with which Cazenove was in discussions before it ended up with JPMorgan.

A May 2004 meeting with CSFB CEO John Mack had effectively marked the end of the talks, with Mack seeming relieved but presciently warning Pickering and Mayhew that “you guys are going to have to do something”.

But just one month later, Credit Suisse chairman Walter Kielholz was telling a “stunned” Pickering and Mayhew that Mack was on the way out, two weeks before it would be announced.

All the discussions gradually petered out for a variety of reasons – Lehman’s US management “just stopped understanding” it. But just as they were winding down, another firm blew onto the scene as Ian Hannam, the formidable JPMorgan banker, approached Mayhew to suggest a joint venture.

Hannam is warmly written by Pickering, who acknowledges the management challenge he presented but also his immense talent for gathering clients and deals. He reappears throughout the discussions around the JV as one of those who understood just what the Cazenove platform meant and could bring to a firm like JPMorgan.

In 2005 the deal is done, Pickering unsentimentally telling the Financial Times that Cazenove was a business, not a national treasure. But the real strain was still to come.

The book that Pickering might have been tempted to write – but sensibly did not – would have been a starched-collars history of Cazenove since its founding in 1823, presenting it as an anachronistic figure of fun.

But he knows his audience well enough not to shun this completely. And so we have a peppering of anecdotes, most of which feature the venerable 12 Tokenhouse Yard, the firm’s creaking London headquarters that is itself one of the cast of characters, all rickety lifts (used only by guests), oil paintings and liveried porters – as well as tobacco-smoke extraction units to cater for Mayhew’s cigarette habit.

As so often, of course, the caricature of the firm is steeped in reality. “The closest the partnership came to ethnic diversity was Thomas Schoch, who was Swiss,” writes Pickering. Elsewhere, Pickering was not explicitly taken to task on the day when he wore Gucci slip-on loafers – “nothing was said” – but he never made the mistake again.

The dominant flavour in his early days is of Eton and the military, but not university. There was, if anything, an anti-intellectual bias at the firm. More than anything there was a sense of an organization set apart from others because of its dogged belief in the concept of being retained by clients for independent advice.

Pickering sees the firm’s attitude to relationships reflected everywhere in little details: senior partner Anthony Forbes hand-writes a letter rearranging Pickering’s first interview with him, foreshadowing Mayhew’s own letters nearly 20 years later.

At times Cazenove seems so uncommercially minded as to scarcely qualify as a for-profit enterprise. One of the many culture clashes in the JPMorgan years stemmed from incomprehension at the idea of not agreeing to advise a client without having assessed if a more lucrative option might exist elsewhere.

“We are not so much a business,” Forbes told Pickering in that first meeting, “more like a group of friends who happen to work together.”

It is testament to the remarkable persistence of Cazenove principles that any of what made the firm unusual was able to survive the joint venture and the eventual buyout by JPMorgan. But as the last part of Pickering’s tale unfolds, it is harder and harder to recognise Forbes’ description of a group of friends in the dysfunctional environment of the bruising years before Pickering’s departure.

It is the closest that Pickering comes to bitterness, with his frustrations aimed squarely at Bill Winters, then co-CEO of JPMorgan’s investment bank and now CEO of Standard Chartered, as well as at Klaus Diederichs, who was running JPMorgan’s investment bank in Europe.

Frequently the tensions boiled over around what seem to be minor issues – particularly the sensitivity of junior JPMorgan bankers to changes in their working conditions. Pickering could not understand why he or anyone should care about their concerns, particularly when it was the job of JPMorgan’s executives to get them onside.

Again, the culture clash was evident: anyone used to the Cazenove way, which did not rely on pushing (relatively) highly paid juniors to their limits but was much more collegiate in the sharing of work, would never get to grips with a US bank mentality.

But there were much more fundamental differences between Winters and Pickering too. Despite an apparently carefully constructed joint venture arrangement, JPMorgan constantly pushed for more control and the power to make big calls, such as resolving the conflicts of interest that Cazenove – with its focus on retained clients – had little experience of managing.

Life might have been different for Pickering had he been dealing with someone like Jamie Dimon, whom he found more pleasant and less robotic than many other US executives. Instead, he was in what he describes as “regular shouting matches” with Diederichs, whom he says was argumentative, although their relationship was professional.

With Winters, the situation deteriorated over time as a result of what Pickering portrays as constant efforts to undermine his own authority as the CEO of JPMorgan Cazenove. Eventually Winters moves to replace Pickering while also attempting to trigger an early buyout of the joint venture at a low price. Even before that, Pickering’s departure had an inevitability about it.

With the benefit of 15 years to reflect on the events of that time, Pickering has written a surprisingly calm and measured book, capturing many intriguing details for the first time, as well as cantering through the history of investment banking in the UK at a critical period.

For more than two decades, he was at the centre of an institution that punched above its weight: the small firm with big clients.